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Is coronavirus fatal for US$25 billion Singapore-Malaysia high-speed rail link?

  • The cost of the project was a sticking point even before Covid-19 caused economic havoc and put a question mark over the future of travel
  • Is this ‘game-changing’ project facing the end of the line, or just another delay?
Malaysia
May 31 was supposed to have been decision day on the future of the high-speed rail link between Malaysia and Singapore, but as the neighbours count their pennies amid the coronavirus-induced economic slowdown, all signs point to a further delay on a final decision.

Analysts expect a lively debate in the months ahead on whether the 110 billion ringgit (US$25 billion) project – once touted as a “game changer” for often-testy bilateral ties – will remain viable in the post-pandemic era.

This Week in Asia understands the two countries may soon announce an extension to the deadline, with both sides still keen to carry on with the development. Under the original agreement signed in 2016, construction on the project was to have been well under way by now.

But the Pakatan Harapan alliance, unexpected victors of the 2018 polls over the long-ruling administration of then leader Najib Razak – an ardent supporter of the rail link – negotiated an extension until May 2020 to decide whether to go through with the project.
The alliance cited the huge national debt incurred by Najib and agreed to pay Singapore S$15 million (US$10 million) for costs incurred for the delay. A unilateral cancellation would have triggered a far more hefty penalty, and Malaysia remains liable for that fee if it decides to go down that route.
Transport industry observers said this was extremely unlikely, given the collapse of Pakatan Harapan in March’s political coup.
Singapore Prime Minister Lee Hsien Loong and the then leader of Malaysia Najib Razak at the signing ceremony of the Memorandum of Understanding for the Kuala Lumpur-Singapore High Speed Rail link. Photo: EPA
The new administration led by Prime Minister Muhyiddin Yassin relies heavily on the support of Najib’s United Malays National Organisation (Umno), which favours the rail project.

Najib this month urged Muhyiddin to press on with major projects like the rail link, saying they would “have a large multiplier effect and contribute to the economy to a large extent”.

A study by researchers at Japan’s Institute of Developing Economies had forecast the project would create an “annual economic benefit” of US$1.59 billion for Malaysia and US$641 million for Singapore by 2030, when the line was supposed to have been fully operational for four years according to the original plan.

KL-Singapore high-speed rail link hit buffers over US$25 billion bill

Still, the analysts said the extension might be needed as both governments were focused on keeping their economies afloat as the pandemic had hit almost every sector.

For Malaysia, especially, the government – already nearing a self-imposed 55 per cent debt-to-GDP ceiling – is under pressure to realign spending so that it has adequate firepower to fund wage subsidies and other forms of stimulus for workers and businesses.

A suitable financing solution – along with Malaysia’s proposal to cut the costs of the original plan – is expected to feature in talks between the two governments’ point men for the development: senior minister for economic affairs Azmin Ali for Malaysia and Transport Minister Khaw Boon Wan for Singapore.

Malaysian Prime Minister Muhyiddin Yassin. Photo: DPA

Singapore-based transport economist Walter Theseira believed the Muhyiddin administration’s immediate focus would be restarting the economy as well as existing trade and travel links.

“To put bandwidth on a new travel link when old ones haven’t been restored properly would not make much sense,” said Theseira, an associate professor with the Singapore University of Social Sciences.

Lee Ju Ye, an economist with Maybank Kim Eng, said financing the project could be a key hurdle, with the two governments having already poured billions of dollars into their stimulus packages.

Singapore has rolled out US$45 billion worth of measures, while Malaysia’s stimulus so far adds up to nearly US$60 billion – including US$8 billion of direct fiscal injections.

Theseira rebuffed the notion that the rail link could have an immediate stimulus effect. “It’s unlikely that the spending will come in early enough to make any difference for the local economy,” he said. Also on analysts’ minds was the long-term feasibility of the project, amid a rising consensus that the post-pandemic “new normal” would include a sizeable reduction in travel.

Experts say the use of videoconferencing tools, which have grown popular during lockdown periods, is likely to linger long after the health crisis has passed, reducing the need for business travel.

In the investment world, the wholesale dumping of US airline stocks by the famed American conglomerate Berkshire Hathaway – led byinvestment guru Warren Buffett – has added to the bearishness about the future of travel.
If anything, demand will increase over time
Law Teik Hua

However, Law Teik Hua, an associate professor with Malaysia’s Putra University, remained upbeat about the viability of the rail link.

The original plan was for the line to bring the door-to-door travel time from downtown Kuala Lumpur to Singapore’s central business district to 2.5 hours, from an average of 4.2 hours by air.

The actual travel time on the 350km rail link would be 90 minutes, similar to a flight when take-offs, landings and taxiing are taken into account. A bus ride – the cheapest mode of travel between Kuala Lumpur and Singapore – takes an average of 6.5 hours.

“If anything, demand will increase over time,” said Law, who specialises in civil engineering. “Covid-19 will be over one day, and we cannot let the old days of buses, a packed Causeway and so on, hold back economic progress.”

Others, like independent Malaysian transport analyst SM Sabri SM Ismail, said a fresh feasibility study might be needed to assess just how demand for the link would be affected by factors such as the dramatic rise of online corporate meetings.

Estimates publicised soon after plans for the link were first announced by Najib and Singapore’s Prime Minister Lee Hsien Loong in 2013 put the passenger load at 22 million a year within 10 years of operation.
Singapore's Prime Minister Lee Hsien Loong and Malaysia’s Najib Razak at the signing ceremony in 2016. Photo: AFP

James Su, an infrastructure analyst at Fitch Solutions in Malaysia, said the uniqueness of travel between the two neighbours, with their intertwined economies and societies, was reason to remain bullish about passenger loads even after taking into account the pandemic’s effects.

“Given that the KL-SG route is one of the highest trafficked international air routes, and given the interconnectedness of the Malaysian and Singapore economies, we believe that there is still a strong business case for the construction of the high-speed rail,” Su said.

The analysts said that given the experience of the pandemic, it was likely the project would have “parameters” built in to accommodate future health crises.

“We never thought about things like these before because the coronavirus was so unprecedented, but now hygiene and social distancing must be considered in construction,” Su said.

Do Malaysia and Singapore really need a high-speed rail link?

Attention is expected to focus next on the final deadline that the two countries agree to.

Once the project gets the green light, attention will turn to the international tender for a company to design, build, maintain and finance rolling stock and rail assets.

An earlier exercise – which drew interest from major rail players from Japan, China and Germany – was called off after the September 2018 deal to delay the project.

In a sign of upbeat market expectations for the project, the shares of Malaysian construction firms YTL Corporation, Gamuda Berhad and Malaysian Resource Corp Berhad – which were previously awarded a contract for civil works for part of the Malaysian portion of the line –soared last week. It is not known if the awards will be valid when the development is restarted.

The listed arm of Iskandar Waterfront Holdings, a real estate firm that co-owns the Bandar Malaysia development that will serve as the rail link’s Kuala Lumpur terminus, has also gained over the last week. Bandar Malaysia’s other owners are the Malaysian government and China’s China Railway Engineering Corp.

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